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Is Taiwan Semiconductor Stock Worth Buying at Premium P/E Valuation?
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Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , the world's largest semiconductor foundry, also known as TSMC, has been on an impressive run in 2024, driven by its strong positioning in artificial intelligence (AI) and high-performance computing (HPC) markets. The stock currently trades at a premium forward 12-month price-to-earnings (P/E) ratio of 23.42, slightly higher than the Zacks Semiconductor – Circuit Foundry industry average of 23.02. While some investors might balk at this premium valuation, the company’s dominant market position, robust financials and promising outlook suggest that TSM stock remains a compelling buy.
Image Source: Zacks Investment Research
Taiwan Semiconductor has delivered an astounding 96.3% rally in its stock price year to date. This surge has outpaced the broader market, with the S&P 500 and the Zacks Computer & Technology sector rising 27.7% and 32.4%, respectively. It also exceeded the industry’s year-to-date return of 93%.
YTD Price Return Performance
Image Source: Zacks Investment Research
Why TSM Commands a Premium Valuation
Taiwan Semiconductor’s premium P/E multiple reflects its unmatched leadership in semiconductor manufacturing, particularly in advanced technologies like 3nm and 5nm nodes. These cutting-edge processes are critical for powering AI applications, next-generation smartphones and data centers. As AI adoption accelerates, TSMC’s ability to deliver chips with superior performance and efficiency gives it a decisive edge over competitors.
Moreover, Taiwan Semiconductor's strong customer base includes tech giants such as NVIDIA Corporation (NVDA - Free Report) , Broadcom Inc. (AVGO - Free Report) , and Apple Inc. (AAPL - Free Report) , ensuring steady revenue streams. The company’s leadership in supplying high-performance AI chips has solidified its position as a go-to supplier for the most demanding industries. This premium reflects investor confidence in TSM’s ability to sustain growth in a competitive and rapidly evolving market.
Taiwan Semiconductor’s financial results underscore its resilience and growth potential. In the third quarter of 2024, the company reported revenues of $23.5 billion, up 36% year over year, with net income surging by 51% to $10.06 billion. Gross margins improved by 350 basis points to 57.8%, a testament to TSMC’s operational efficiency and pricing power.
Taiwan Semiconductor’s 3nm technology contributed 20% of total wafer revenues in the quarter, while the 5nm process added another 32%. These advanced nodes remain in high demand, especially for AI and HPC applications, which accounted for more than 51% of TSMC’s revenues. This robust performance is expected to continue, with the company projecting fourth-quarter revenues to rise by 35% year over year to a range of $26.1 billion-$26.9 billion.
The Zacks Consensus Estimate for the current and next year also depicts continued growth momentum for Taiwan Semiconductor.
Taiwan Semiconductor’s capital expenditures for 2024 are set to exceed $30 billion, underscoring its commitment to maintaining its technological edge. The company is aggressively investing in the development of its 2nm process technology, which is expected to deliver up to 30% power savings compared to 3nm chips. These advancements will strengthen TSM’s market leadership as demand for energy-efficient and high-performance chips grows.
Beyond AI and HPC, TSMC is also expanding its footprint in other high-growth sectors such as automotive and the Internet of Things (IoT). In the third quarter, automotive chip revenues grew to 5% of the total, supported by trends like electric vehicle adoption and autonomous driving. Meanwhile, smartphone chips accounted for 34% of revenues, highlighting TSMC’s broad-based demand across industries.
TSMC’s Valuation: A Premium Worth Paying
Taiwan Semiconductor’s relatively moderate premium valuation is justified by its consistent revenue growth, robust margins and leadership in advanced manufacturing technologies. Moreover, TSMC’s strong cash position — $37.62 billion as of Sept. 30, 2024 — provides ample flexibility for future investments and shareholder returns.
The company’s forward-looking growth prospects align with its valuation. With AI-related server processor demand expected to triple by the end of 2024 and sustained momentum in automotive and IoT markets, Taiwan Semiconductor is well-positioned to capitalize on long-term trends.
Conclusion: Buy TSM Stock for Long-Term Gains
Taiwan Semiconductor’s premium P/E valuation reflects its dominant position in the semiconductor industry, robust financial performance and strategic investments for future growth. The company’s leadership in AI and HPC markets, combined with its expanding presence in the automotive and IoT sectors, ensures a promising outlook.
While the stock has rallied significantly in 2024, its valuation remains reasonable compared to its growth potential. For investors seeking exposure to the booming semiconductor industry, TSM stock remains a strong buy. The company’s technological edge, financial resilience and market leadership make it an attractive long-term investment. Taiwan Semiconductor currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Is Taiwan Semiconductor Stock Worth Buying at Premium P/E Valuation?
Taiwan Semiconductor Manufacturing Company (TSM - Free Report) , the world's largest semiconductor foundry, also known as TSMC, has been on an impressive run in 2024, driven by its strong positioning in artificial intelligence (AI) and high-performance computing (HPC) markets. The stock currently trades at a premium forward 12-month price-to-earnings (P/E) ratio of 23.42, slightly higher than the Zacks Semiconductor – Circuit Foundry industry average of 23.02. While some investors might balk at this premium valuation, the company’s dominant market position, robust financials and promising outlook suggest that TSM stock remains a compelling buy.
Image Source: Zacks Investment Research
Taiwan Semiconductor has delivered an astounding 96.3% rally in its stock price year to date. This surge has outpaced the broader market, with the S&P 500 and the Zacks Computer & Technology sector rising 27.7% and 32.4%, respectively. It also exceeded the industry’s year-to-date return of 93%.
YTD Price Return Performance
Image Source: Zacks Investment Research
Why TSM Commands a Premium Valuation
Taiwan Semiconductor’s premium P/E multiple reflects its unmatched leadership in semiconductor manufacturing, particularly in advanced technologies like 3nm and 5nm nodes. These cutting-edge processes are critical for powering AI applications, next-generation smartphones and data centers. As AI adoption accelerates, TSMC’s ability to deliver chips with superior performance and efficiency gives it a decisive edge over competitors.
Moreover, Taiwan Semiconductor's strong customer base includes tech giants such as NVIDIA Corporation (NVDA - Free Report) , Broadcom Inc. (AVGO - Free Report) , and Apple Inc. (AAPL - Free Report) , ensuring steady revenue streams. The company’s leadership in supplying high-performance AI chips has solidified its position as a go-to supplier for the most demanding industries. This premium reflects investor confidence in TSM’s ability to sustain growth in a competitive and rapidly evolving market.
Recent Financial Performance Highlights TSMC’s Strength
Taiwan Semiconductor’s financial results underscore its resilience and growth potential. In the third quarter of 2024, the company reported revenues of $23.5 billion, up 36% year over year, with net income surging by 51% to $10.06 billion. Gross margins improved by 350 basis points to 57.8%, a testament to TSMC’s operational efficiency and pricing power.
Taiwan Semiconductor’s 3nm technology contributed 20% of total wafer revenues in the quarter, while the 5nm process added another 32%. These advanced nodes remain in high demand, especially for AI and HPC applications, which accounted for more than 51% of TSMC’s revenues. This robust performance is expected to continue, with the company projecting fourth-quarter revenues to rise by 35% year over year to a range of $26.1 billion-$26.9 billion.
The Zacks Consensus Estimate for the current and next year also depicts continued growth momentum for Taiwan Semiconductor.
Image Source: Zacks Investment Research
TSM’s Strategic Investments Drive Long-Term Growth
Taiwan Semiconductor’s capital expenditures for 2024 are set to exceed $30 billion, underscoring its commitment to maintaining its technological edge. The company is aggressively investing in the development of its 2nm process technology, which is expected to deliver up to 30% power savings compared to 3nm chips. These advancements will strengthen TSM’s market leadership as demand for energy-efficient and high-performance chips grows.
Beyond AI and HPC, TSMC is also expanding its footprint in other high-growth sectors such as automotive and the Internet of Things (IoT). In the third quarter, automotive chip revenues grew to 5% of the total, supported by trends like electric vehicle adoption and autonomous driving. Meanwhile, smartphone chips accounted for 34% of revenues, highlighting TSMC’s broad-based demand across industries.
TSMC’s Valuation: A Premium Worth Paying
Taiwan Semiconductor’s relatively moderate premium valuation is justified by its consistent revenue growth, robust margins and leadership in advanced manufacturing technologies. Moreover, TSMC’s strong cash position — $37.62 billion as of Sept. 30, 2024 — provides ample flexibility for future investments and shareholder returns.
The company’s forward-looking growth prospects align with its valuation. With AI-related server processor demand expected to triple by the end of 2024 and sustained momentum in automotive and IoT markets, Taiwan Semiconductor is well-positioned to capitalize on long-term trends.
Conclusion: Buy TSM Stock for Long-Term Gains
Taiwan Semiconductor’s premium P/E valuation reflects its dominant position in the semiconductor industry, robust financial performance and strategic investments for future growth. The company’s leadership in AI and HPC markets, combined with its expanding presence in the automotive and IoT sectors, ensures a promising outlook.
While the stock has rallied significantly in 2024, its valuation remains reasonable compared to its growth potential. For investors seeking exposure to the booming semiconductor industry, TSM stock remains a strong buy. The company’s technological edge, financial resilience and market leadership make it an attractive long-term investment. Taiwan Semiconductor currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.